When a National Cap-and-Trade Policy with a Carve-out Provision May Be Preferable to a National CO2 Tax

Megan H. Accordino and Deepak Rajagopal

The Energy Journal, 2015, vol. 36, issue 3, 189-208

Abstract: We analyze the effect of various combinations of state and national emissions policies on national emissions of a global pollutant, specifically, greenhouse gas emissions. We highlight the effect of unintended increases in out-of-state emissions on the efficacy of overlapping state policies. We show that emission taxes do not necessarily prevent a completely offsetting increase in out-of-state emissions when states add a state-level emissions tax to the national emissions tax. In particular, states small relative to their market will be unable to reduce national emissions with a state-level CO2 tax or a system of tradable permits. However, under a national cap-and-trade regime that allows states to be carved out, a state of any size can reduce national emissions by setting a tighter state cap. This combination yields a lower total cost than the equivalent combination of national and state CO2 taxes (if one exists) but increases the cost to consumers outside the market.

Keywords: Electricity; Tax; Tradable permits; Nested regulations; Renewable energy; Emissions; Climate change (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:36:y:2015:i:3:p:189-208

DOI: 10.5547/01956574.36.3.macc

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